Grow Your Lottery Winning Using Economics

Reuters reported on 23 August 2017 that a Massachusetts woman won US$759 million in a Powerball drawing, the highest prize for a single ticket holder in the contest’s history.

When approached by media on her plan on how to spend her bountiful lottery prize of US$759 million, the 53-year old healthcare worker said she would retire from her 23-year job. What’s next?

The reality is, we cannot simply sit on the big pile of money. Our choice is either to grow it or drain it. Before we proceed to discuss how, let us take a look at the statistics. What happens to the past lottery winners?

70% Lottery Winners End up Broke in 5 Years

According to a survey among winners in Florida, about half of the winners stopped working (employed or self-employed) after striking a lottery and 70% used up all their prize money within a short span of 5 years. This is consistent with the finding by the United States’ National Endowment for Financial Education, that about 70% of people lost the windfall of money they had received in a few years. Some even ended up worse than before striking the lottery. 1% of lottery winners in Florida file for bankruptcy every year.

It seems despite their luck in winning, they are not equipped with the knowledge and skills to manage their money and hence their tragic ends of going broke or bankrupt. What you have learned from economics tuition may help you grow your money and break this curse of lottery.

Your Choice to Grow it or Drain it

You are draining your money if you don’t grow it. You don’t have to sign up for an economics tuition or consult an economics tutor to understand this. Your prize money is like a basket of eggs. If you don’t get the eggs hatched, raise the chicks and let them lay more eggs for you, no matter how many eggs you have now, they will finish one day. Therefore, the choice is obvious: grow your prize money. Here’s our next question: How to grow it?

Plan Your Investment Portfolio

Students have learned at economics tuition conducted by their economics tutor about the various types of investment tools. Apply the knowledge you have acquired in economics tuition from your economics tutor and choose the tools wisely to suit your risk appetite and generate moderate returns that should be at least enough to cover the annual inflation. If you manage to generate returns higher than the annual inflation, congratulations, you are growing your money.

You will be amazed at how your money can work magically to generate more wealth for you. Given that you have a fortune of US$759 million from the lottery win, a moderate return of 2% per annum will give you US$15.18 million every year. Speak to your economics tutor to find out how the compound interest rate will work the magic to snowball your wealth.

Spend Your Money Wisely

Once you have a good investment portfolio to make your money work for you, it is now time to work out your maths. How long do you want the money to last you and how much should you spend every year? Based on the annual budget, work out the detailed calculations on the items to spend on. With the budget working as a guideline, you are able to use your money wisely and avoid the tragic end of going broke or bankrupt.

I believe your economics tutor has shared with you in economics tuition the culture of thrift in Singapore, which is often used to explain consumption expenditure in Singapore. If you have also learned about maximising consumer’s utilities in economics tuition, you will understand that Singapore consumers are not maximising their utilities by adopting a thrifty lifestyle. I will not elaborate further on this. Please approach your economics tutor for more information if you are interested.

In summary, by planning your investment portfolio carefully and spend your money wisely, lottery winners will be able to live on the fortune of the lottery prize they receive and enjoy a decent, quality life.

Linda Geng

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